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21 Feb, 2008

Published: 08:21 Thursday 21 February 2008
By: David Campbell, Investment Reporter

The global economy is coming to the end of a 50-year credit super cycle Aberdeen's Citywire AAA-rated head of global equities Stephen Docherty has warned.

Docherty said that the world will face some 'extremely tough questions' on how to manage growth and inflationary pressure in the years ahead.

'Over the past fifty odd years, since the second world war essentially, whenever we have had intense pricing pressure we have been able to turn to the developing world to control costs by exporting business and manufacturing,' said Docherty.

'While this has controlled pricing and labour costs, it has also had the effect of exporting our inflation. We are running out of places where we can now turn to.'

Docherty pointed to the fact that, by some measures, Chinese inflation is currently running at around 10%, its highest for more than a decade.

'I would guess the biggest question is whether the Fed will continue to cut rates,' said Docherty. 'Everyone is now looking to them to be the saviour in this situation, but equally it has been what has brought us to where we are now and the American consumer is being encouraged to continue with an unsustainable level of spending.

'Somewhere down the line the US is going to have to accept that it is going to feel some pain, whether that is in the form of inflation or lower growth.'

He said that he had faith that the macro economic view was not always reflected in corporate balance sheets however, and that there remained well funded and managed companies capable of offering consistent returns.

Docherty's Aberdeen World Equity fund returned 3.7% to investors over the 12 months to the end of January 2008 versus an average manager return of -0.7%.

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